Contents of Petitions for Declaratory Ruling

Contents of Petitions for Declaratory Ruling

1. Information on Disclosable Interest Holders and Foreign Investor Interests

111. 
     The Commission proposed in the NPRM to require that all section 310(b)(4) petitions for declaratory ruling contain the name, address, citizenship, and principal business(es) of any individual or entity, regardless of citizenship, that directly or indirectly holds or would hold, after effectuation of any planned ownership changes described in the petition, at least ten percent of the equity or voting interests in the controlling U.S. parent of a common carrier or aeronautical radio station licensee or a controlling interest.²³⁵ The NPRM explained that this proposed ten percent ownership threshold would mirror the ownership disclosure requirements that currently apply to most common carrier applicants under the Commission’s licensing rules.²³⁶ The Commission also asked whether a lower disclosure threshold, such as an interest that exceeds five percent, may be appropriate.²³⁷ The NPRM also proposed to require similar ownership information for each foreign entity for which the petition seeks specific approval.²³⁸
     
112. 
     The Departments requested that we adopt a five percent disclosure requirement, stating that “[i]dentifying owners between five and ten percent provides a greater opportunity to ensure that unaffiliated foreign investors are not acting in concert with each other.”²³⁹ They also stated that, depending on a company’s ownership structure, “company owners between five and ten percent may have the potential to exert influence on company operations sufficient to raise possible law enforcement or national security concerns.”²⁴⁰ Industry commenters oppose a lower threshold.²⁴¹ Verizon, however, suggested that we require disclosure of only those investors with voting power in a licensee. Verizon argues that “an individual or entity’s equity interest in a company is not meaningful as a measure of control because without voting power, the entity has limited – if any – authority to influence decisions.”²⁴²
     
113. 
     To ensure that the disclosure requirement in the context of foreign ownership of common carrier and aeronautical radio station licensees is consistent with the ownership disclosure requirements that currently apply to most common carrier applicants under the Commission’s licensing rules, we adopt the ten percent disclosure threshold proposed in the NPRM. Specifically, all section 310(b)(4) petitions for declaratory ruling must contain the name, address, citizenship, and principal business(es) of any individual or entity, regardless of citizenship, that directly or indirectly holds or would hold, after effectuation of any planned ownership changes described in the petition, at least ten percent of the equity or voting interests in the controlling U.S. parent of a common carrier or aeronautical radio station licensee or a controlling interest. We also require that petitions for declaratory ruling filed by common carrier licensees subject to section 310(b)(3) forbearance contain the same information for such interests in the common carrier licensee. Petitioners will also be required to provide the percentage of equity and voting interest held or to be held by each such “disclosable interest holder” (to the nearest one percent). It is our view that this ownership information is necessary for the Commission to verify the principal stakeholders and ultimate control of the U.S. parent company of a common carrier or aeronautical licensee, in the case of section 310(b)(4) review, and in a common carrier licensee, in the case of petitions filed under our section 310(b)(3) forbearance approach, and that requiring its submission would impose a minimal burden on petitioners.²⁴³
     
114. 
     We do not adopt a lower, more stringent ownership disclosure threshold, such as a five percent threshold as requested by the Departments. We find that adopting a ten percent disclosure threshold is reasonable, and observe that, under a separate provision of the rules, licensees will be required to identify and seek specific approval for foreign investors holding interests greater than five percent (subject to an exception for certain ten percent interests).²⁴⁴ We find that this specific approval requirement for foreign investors addresses the Departments’ concern that we should require petitioners to disclose all five percent interest holders, regardless of citizenship. For this reason, we believe this proposal should preserve a meaningful opportunity for the Departments to review applications for national security and law enforcement concerns. We also do not adopt Verizon’s suggestion that we require disclosure of only those investors with voting power in a licensee. We are not convinced on the basis of this record that we should limit our disclosure requirements to include only those investors that possess voting rights in a company. Such an approach would depart from Commission precedent that reads section 310(b) to evince Congress’ separate concern with the scope of foreign equity interests in a licensee and its parent company regardless of whether they confer control. In addition, we are concerned that non-voting equity investors may have the interest and ability in a particular case to actively participate in the affairs of companies in which they invest.²⁴⁵
     
115. 
     We will require petitions to include a percentage estimate of the licensee’s and/or U.S. parent’s aggregate direct and indirect foreign equity and voting interests, a general description of the methods used to determine the percentages, and a statement addressing the circumstances that prompted the filing of the petition for declaratory ruling and demonstrating that the public interest would be served by grant of the petition. The rules will also require petitioners to describe the ownership and control structure of the U.S. parent, under section 310(b)(4), and of the common carrier licensee, under our section 310(b)(3) forbearance approach, including an ownership diagram and identification of the real party-in-interest disclosed in any companion licensing or spectrum leasing applications.²⁴⁶ Many applicants and licensees already provide ownership diagrams in their petitions and applications. This practice has proven to be useful to Commission staff in clarifying relationships among different entities and individuals holding ownership interests, particularly in applicants or licensees that have a complex organizational structure. We find that requiring an ownership diagram will impose a minor burden on petitioners which will be more than offset by the significant benefits that will accrue to the Commission in processing petitions as expeditiously as possible.
     
116. 
     We also adopt the proposal in the NPRM that section 310(b)(4) petitions include ownership information for each foreign individual or entity for which the petition seeks specific approval: specifically, their names, citizenship, principal businesses, and the percentage of equity and/or voting interest held or to be held by the foreign investor (to the nearest one percent).²⁴⁷ This same requirement will apply to petitions for declaratory ruling filed by common carrier licensees subject to section 310(b)(3) forbearance. Where the named foreign investor is a corporation or other business entity, the petition shall identify each of the named foreign investor’s direct or indirect ten percent interest holders, specifying each by name, citizenship, principal businesses, and percentage of equity and/or voting interest held in the named foreign investor.²⁴⁸ We find that this ownership information is necessary for the Commission to verify the identity and ultimate control of the foreign investor for which the petitioner seeks specific approval.²⁴⁹
     

1. Methodology for Calculating Disclosable Interests and Foreign Investor Interests

117. 
     In support of the ownership disclosure rules discussed above, we codify in sections 1.992 and 1.993 of the new rules our established methodology for calculating a petitioner’s disclosable interest holders, in order to make that methodology more readily available to the public. We will also require that petitioners requesting specific approval for named foreign investors use the same methodology to calculate the foreign investors’ equity and voting interests in the controlling U.S. parent of a common carrier and aeronautical licensee, under section 310(b)(4), and in a common carrier licensee subject to section 310(b)(3) forbearance. The rules reflect the established Commission methodology for determining the level of foreign equity and voting interests that are held directly and/or indirectly in the U.S. parent of a common carrier or aeronautical licensee that is the subject of a section 310(b)(4) petition.²⁵⁰ We also clarify here, however, the insulation standard for limited partners of a common carrier or aeronautical licensee or its U.S. parent, or of any intermediate entity in their vertical chains of ownership, that is organized as a limited partnership.²⁵¹ We also clarify the appropriate methodology for calculating voting interests held in U.S. parent companies of common carrier or aeronautical licensees through intervening limited liability companies, and in a common carrier licensee through intervening limited liability companies.²⁵² We discuss each of these issues below.
     
118. 
     The rules we codify today for calculating interests were established in the Commission’s case law. In Wilner & Scheiner and its progeny, the Commission set forth a standard for calculating both foreign equity interests and foreign voting interests held in a licensee under section 310(b)(3), and in a licensee’s U.S. parent under section 310(b)(4), where such interests are held through intervening entities.²⁵³ In calculating foreign equity interests, the Commission uses a multiplier to dilute the percentage of each investor’s equity interest when those interests are held through intervening companies. The multiplier is applied to each link in the vertical ownership chain, regardless of whether any particular link in the chain represents a controlling interest in the company positioned in the next lower tier.²⁵⁴ The resulting product yields the pro rata equity holdings of the investors in the licensee, under section 310(b)(3), or in the controlling U.S. parent company, under section 310(b)(4), separate from the voting power associated with the investors’ shareholdings.²⁵⁵
     
119. 
     By contrast, in calculating foreign voting interests, the multiplier is not applied to any link in the vertical ownership chain that constitutes a controlling interest in the company positioned in the next lower tier.²⁵⁶ In circumstances where voting interests are held through one or more intervening partnerships, the multiplier is not applied to dilute a general partnership interest or uninsulated limited partnership interest held by a foreign individual or entity. A general partner is considered to hold the same voting interest as the partnership holds in the company situated in the next lower tier of the vertical ownership chain. Similarly, in the absence of a specific demonstration that a limited partner effectively is insulated from active involvement in partnership affairs, a limited partner will be deemed to hold the same voting interest as the partnership holds in the company in the next lower tier of the vertical ownership chain.²⁵⁷
     
120. 
     Where a foreign investor holds an ownership interest indirectly in the U.S. parent company of a common carrier or aeronautical licensee through an intervening limited partnership, and the investor is effectively insulated from active involvement in partnership affairs, the U.S. parent may apply the multiplier in calculating the foreign investor’s voting interest in the U.S. parent under section 310(b)(4).²⁵⁸ Thus, in such a case, the foreign investor’s voting interest will be calculated as equal to its equity interest in the U.S. parent.²⁵⁹ Similarly, where the U.S. parent of a common carrier or aeronautical licensee is itself organized as a limited partnership, an insulated limited partner’s voting interest in the U.S. parent will be calculated as equal to the limited partner’s equity interest in the parent. A limited partner will be treated as insulated where the petitioner can demonstrate that the limited partner is effectively insulated “from active involvement in partnership affairs.”²⁶⁰
     
121. 
     The NPRM requested comment on whether the insulation standard used to calculate limited partnership interests in U.S. parents of common carrier and aeronautical licensees “is sufficient to support a presumption that an insulated limited partner will not be materially involved in managing partnership affairs.”²⁶¹ It also sought comment on whether the same principles should govern our consideration of limited liability companies (“LLCs”) and limited liability partnerships (“LLPs”). We did not receive any comments on either of these issues. In the absence of any such comments, we do not believe it is appropriate to revise our current insulation standard, which applies to limited partnership interests held in a common carrier or aeronautical licensee or its U.S. parent, or in any intermediate entity in their vertical chains of ownership.
     
122. 
     However, we take this opportunity to clarify the insulation, or “active involvement,” standard. We will treat an interest as insulated only where the governance documents of the limited partnership prohibit the limited partner from becoming actively involved in the management or operation of the partnership and limit the limited partner’s voting or consent rights to the investor protections in section 1.993 of the new rules. Notwithstanding the inclusion of such limitations, a petitioner shall not treat a limited partner as insulated if the U.S. parent or licensee has actual knowledge of material involvement by the limited partner. We will maintain current policy that treats an insulated limited partner as having a voting interest in the limited partnership that is equal to its equity interest. No commenter addressed whether we should change this aspect of current policy and afford an insulated limited partner treatment akin to that of a holder of non-voting stock in a corporation.²⁶²
     
123. 
     The NPRM also asked whether the Commission should codify a list of investor protections which would not, in themselves, result in a limited partner being deemed an uninsulated limited partner.²⁶³ No commenter addressed this issue. We find that the matters listed in the NPRM are properly considered usual and customary investor protections, and we incorporate these matters in the new rules for calculating equity and voting interests held in or through a limited partnership.²⁶⁴ These matters will consist of the following: (1) the power to prevent the sale or pledge of all or substantially all of the assets of the limited partnership or a voluntary filing for bankruptcy or liquidation; (2) the power to prevent the limited partnership from entering into contracts with majority investors or their affiliates; (3) the power to prevent the limited partnership from guaranteeing the obligations of majority investors or their affiliates; (4) the power to purchase an additional interest in the limited partnership to prevent the dilution of the partner’s pro rata interest in the event that the limited partnership issues additional instruments conveying interests in the partnership; (5) the power to prevent the change of existing legal rights or preferences of the limited partners, as provided in the limited partnership agreement or other operative agreement; (6) the power to vote on the removal of a general partner in situations where the general partner is subject to bankruptcy, insolvency, reorganization, or other proceedings relating to the relief of debtors; adjudicated insane or incompetent by a court of competent jurisdiction (where the general partner is a natural person); convicted of a felony; or otherwise removed for cause, as determined by an independent party; (7) the power to prevent the amendment of the limited partnership agreement or other organizational documents of the partnership with respect to the matters described above. Under the new rules, the Commission may consider, on a case-by-case basis, whether investor protections other than those listed in the rule should be permissible in the context of a particular licensee’s petition for declaratory ruling.
     
124. 
     We will apply to LLCs and LLPs the same principles that we are adopting for the calculation of voting interests in limited partnerships.²⁶⁵ Thus, for example, where a foreign investor holds an interest indirectly in the U.S. parent of a common carrier or aeronautical licensee through an intervening LLC, and the investor is effectively insulated from active involvement in the affairs of the LLC, the U.S. parent may apply the multiplier in calculating the foreign investor’s voting interest as well as its equity interest in the U.S. parent.²⁶⁶ An ownership interest in an LLC or LLP will be treated as insulated where the governance documents of the LLC or LLP prohibit the interest holder from becoming actively involved in the management or operation of the LLC or LLP and limit the holder’s voting or consent rights to the investor protections in section 1.993 of the new rules.²⁶⁷ Notwithstanding the inclusion of such limitations, a petitioner shall not treat the interest holder as insulated if the U.S. parent or licensee has actual knowledge of material involvement by the interest holder.
     
125. 
     As discussed in the NPRM, the Commission’s broadcast attribution rules treat LLCs and LLPs in the same manner as limited partnerships.²⁶⁸ The Commission found in its 1999 Broadcast Attribution Order that LLCs were comparable to limited partnerships in terms of organization flexibility and that, even where a company elected a “corporate form” of governance, owners of the enterprise were still afforded sufficient discretion under state law to retain some level of operational control on their own part.²⁶⁹ The Commission thus declined to differentiate its treatment of LLCs based on whether their management form is centralized or decentralized. It also concluded in the 1999 Broadcast Attribution Order that it would treat LLPs in the same manner as limited partnerships and LLCs.²⁷⁰ We similarly find no basis in the record of this proceeding to differentiate between these alternative forms of business association for purposes of calculating voting interests held in common carrier and aeronautical licensees and their U.S. parent companies.²⁷¹
     
126. 
     We additionally find that it is reasonable for the Commission to rely on a petitioner’s certification that it has calculated the ownership interests disclosed in its petition based upon its review of the Commission’s rules and that the interests disclosed satisfy each of the pertinent standards and criteria required by the rules.²⁷² As noted in the NPRM, the Commission relies on certifications of compliance with its rules in numerous licensing and related contexts, including compliance with the foreign ownership limitations in section 310(b), reporting of disclosable interest holders under common carrier licensing rules, and disclosure of attributable interests under the media ownership rules.²⁷³ SIA supports use of a certification, which it states is a “well-established practice, and avoids imposing additional burdens on filers (to proactively produce evidence of compliance) and Commission staff (to review such evidence to confirm compliance, even in circumstances where compliance is not in doubt).²⁷⁴ No commenter opposed reliance on certifications. We will therefore include in section 1.991 of the rules a provision allowing petitioners to certify to compliance with our ownership disclosure rules in their petitions for 310(b)(3) forbearance review and section 310(b)(4) review.
     

1. Other Content Requirements

127. 
     As discussed in paragraph 92 above, the rules will require applicants, licensees, and spectrum lessees to file a joint petition for declaratory ruling where the entities are under common control and contemporaneously hold, or are contemporaneously filing applications for, common carrier or aeronautical licenses or spectrum leasing arrangements. Where the joint petitioners have different disclosable interest holders and/or request specific approval for different foreign investors, such information should be set out separately for each joint petitioner.²⁷⁵ In addition, section 1.991 of the rules will require all petitioners to state whether they request a ruling under our section 310(b)(3) forbearance policy and/or under section 310(b)(4).
     
128. 
     We have also modified section 1.991, as proposed in the NPRM, to eliminate the requirement that petitions list all of a petitioning licensee’s or lessee’s call signs and spectrum leasing file numbers. T-Mobile observes that some wireless companies hold hundreds or even thousands of wireless licenses and asserts that complying with this requirement would impose substantial burdens on them without producing any tangible benefits.²⁷⁶ We agree that it is unnecessary to require the listing of call signs and spectrum leasing file numbers and have eliminated this provision from the rules.
     

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